Clarity on PLM

A quick peek into some research on … how manufacturers and vendors plan to react to the market for CAD, CAE, PLM, and other engineering software in 2010. Last week I posted the first part of my research for COFES, Engineering Market Research Results from COFES 2010. Last week I reviewed how 2009 predictions played out and what the survey participants expect from 2010. Today, I plan to focus on what they are going to do about it.

The Research Findings – What Comes Next?

Let’s jump right in. 2009 was a bad experience for most companies in our market, but the outlook for 2010 looks a lot better. Stunning analysis on my part, isn’t it? More details are in the prior post, but I realize I stating the obvious based on what most of you are experiencing. So what did the survey say will happen in the engineering software market between now and this time next year (2011)? It is not all positive.

• Continued Consolidation – Over half of the respondents predict “continued consolidation within the industry.” This is not all bad, by the way. The market for suites of applications always relies on innovation around the edge and consolidation into an integrated offering. This has been true for other markets as well, for example the way ERP became such a large suite of solutions. I expect we will also see the kind of consolidation expected in most mature markets, where companies acquire older solutions to scale up their customer base and maintenance revenue. 
• Fewer New Entrants – Almost half (44%) of the participants believe there will fewer new companies coming into our market. I have heard that it is still difficult to get venture funding, so this doesn’t surprise me. I hope this changes, because I think market innovation is much easier in a “garage” than in a big corporate R&D center.
• Entry by “Others” – A third that responded to the survey see further entry into this market by “non-traditional” vendors like SAP, Oracle, and possibly others through acquisition. Interestingly, less than half that many (15%) believe those same companies will enter by developing their own solutions. See Who Will Disrupt PLM Giants? for more of my thoughts on that.

The Research Findings – What Are We Doing About It?

So that explains what we think will happen, but what are market participants planning do it about it? In a word, grow. In two words, grow profitably.

• Over 1/2 of companies polled listed “grow in existing markets” and “grow in new markets“ in their three responses. What clearer message could we get? Companies are upbeat about 2010.
• But wait, 40% say they also have “remain lean” in their strategies for 2010. I believe there are two drivers behind this. The first is caution. Yes, we are recovering. But no, I haven’t talked to a lot of people that are 100% confident that it will continue or that we won’t have a “double dip.” But there is another reason, in my opinion. That is profitability. Companies that remain lean in growth markets make nice profits. It is not sustainable over the long haul because people get overworked, but as a business strategy it works.

Implications for Manufacturers
So what does this all mean if you are a manufacturer? First, you are facing many of the same conditions. Your businesses are also planning to grow, but you will likely stay lean. One of the way to stay lean is to get the most out of the resources you have, which I believe will help fuel the engineering software market recovery. To remain lean, many manufacturers will upgrade tools and automate processes to improve efficiency. 2010 will be a busy year. But would anybody trade a busy 2010 for a repeat of 2009? I doubt it. Let’s get things rolling again, and then as growth is sustained let’s start to invest and get people back to work.

So that was a quick peek into some recent research on how companies plan to react to the recovering market in 2010, I hope you found it interesting. Does the research reflect your experiences? Do you see it differently? Let us know what it looks like from your perspective. Please feel free to review more free research and white papers about PLM and other enterprise software for manufacturers from Tech-Clarity.

A quick peek into some research on … the market for CAD, CAE, PLM, and other engineering software for 2010. 2009 was a very difficult year, no surprise. But what does 2010 look like? When will the market recover to pre-recession levels? Those are the questions we asked in a research study conducted between Tech-Clarity (me), Cyon Research, and Design Insight. Here is a synopsis of the research I presented at COFES in April.

Note: Please understand that I am not a financial analyst, and that this research is based on survey data that indicates the sentiment and beliefs of those buying, selling, and otherwise participating in the engineering software market. In other words, there is no financial investment advice here.

The Research Findings – History

The results from the 2009 engineering software market study were difficult to look at. Unfortunately, they were a pretty good reflection of the situation. Most people felt that it would be at least 2-3 years before the market recovered. More telling, however, was that the execs at the companies that buy the software said the recovery were more pessimistic than the execs at the companies the sell the software. That was a disturbing finding. We also discussed the implications for smaller vendors (specialty vendors and startups) and the projection was not pretty. So what really happened? And how do companies in the engineering software market feel today?

The Research Findings – View in 2010

The market is clearly recovering. While last year I had to start with a quote from Dilbert to lighten everybody up, this year I quotes Fed Reserve Chairman Ben Bernanke saying the economy started growing again in the 3rd quarter of 2009, and the economy was finally starting to create jobs. There was no surprise or sigh of relief in the room, everybody already knew this. Since that time, Dassault Systemes, PTC, and Siemens PLM have reported good news (quarterly results and/or big deals) compared to last year (among others).  My FABWA (financial analysis by walking around) at the conference told me that smaller companies are feeling the recovery as well. People are buying engineering software again (please insert a choir of angels here).

What did the over 400 survey participants have to say? Here are the highlights:

• The predictions from last year for 2010 were relatively accurate, 59% of of respondents said their business suffered “severe” or “moderate” negative impact in 2009 (compared to a prediction of 55%) – Mythbuster approved!
• The projections for 2010 are better, but don’t indicate we are out of the woods yet. 23% still expect moderate negative impact in 2010. But only 8% predict severe negative impact, and 20% expect a positive impact. We’ll take that over 2009 for sure!
• The channels including VARs (value added resellers) and consultants were hurt the most. Over 1/2 experienced severe negative impact. This was worse than predicted, even though the expectations were not very positive.
• Suite vendors including those with multiple engineering software solutions, enterprise software vendors (like SAP and Oracle), and infrastructure providers (like Microsoft) faired the best. Only 20% experienced severe negative impact.
• The channels are the least optimistic for a positive impact in 2010 (only 9%), while the suite vendors are the most optimistic (36%)
• Our predictions for smaller vendors were mixed, with larger vendors expecting more failures in their smaller competitors. While it was a tough year, the majority of the companies respondents had direct experience with fell into the “struggle but survive” category. The smaller vendors predicted this, and good for them. Of course there have been consolidations and failures, and as one participant commented “100% of the startups I was following failed to start“

So the obvious question is what comes next? Well, for  me it as another cup of coffee and a decision that this post is getting too long. So look for a part 2 with the future view shortly.

Implications for Manufacturers

So what does this all mean to the people using engineering software to make a living? The good news is that your business is likely recovering as well. The bad news, is that you are probably running very lean. But from this research (and related research by Cyon Research presented by Brad Holtz) you are also likely to be buying engineering software to help. I am sure that is good news to many that have had strategic programs put on hold due to economic uncertainty. Things are starting to move forward again.

And hopefully your critical vendors either survived the downturn or were acquired by a company that will support you well. The vendor shakeout is probably not entirely over, but if your vendor made it through 2009 they have proven they have some resilience and should have a much easier time going forward.

So that was a quick peek into some recent research on the engineering software market, I hope you found it interesting. Does the research reflect your experiences? Do you see it differently? Let us know what it looks like from your perspective. Please feel free to review more free research and white papers about PLM and other enterprise software for manufacturers from Tech-Clarity.

A quick peek into some research on … the recovery of the software and hardware industry in this AP piece Analyst firm says tech sector to recover in 2010. The data has me thinking about what state the PLM market will be in this year. From all signs I can see, things are looking much better. I am looking forward to hearing from some of my peers in the analyst community that cover PLM directly, but for now here are some thoughts and – as always – my thoughts on how this will impact manufacturers.

The Research Findings

Here are some snipits from the AP release:

• Forrester Research Inc. … expects global spending on technology products and services to grow 8.1 percent in 2010, to more than $1.6 trillion
• Forrester also said U.S. spending is expected to rise 6.6 percent, to $568 billion
• Last fall Gartner Inc. forecast 3.3 percent growth in global technology spending
• IDC, said in December that worldwide tech spending would grow 3.2 percent in 2010

These are very good numbers. The fact that they don’t agree doesn’t bother me because it is not clear that the big gorillas in the analyst community have any standard definition of the market, they use different data sources, and as all manufacturers know a forecast by definition is wrong. But if you look at each of these, they are trending positive. With that in mind, we know several things:

• The software market is expected to recover
• PLM was growing rapidly (double digit growth) prior to the downturn
• The PLM value proposition is stronger than ever, and more companies have proven the value

I am not an economist, but I like the way this looks for 2010. I have also had the opportunity to talk to a number of manufacturers, and they are still very excited about PLM. I expect demand will be for core PLM, but also for other product innovation, product development, and engineering solutions as I mentioned in my post Mythbusting Product Innovation and PLM 2010 Predictions.

Implications for Manufacturers

Hopefully you and your vendor made it through the downturn. The past year saw many manufacturers take a survive and thrive approach to the market, leaning out to make it through the down market but innovating to be ready to capitalize on the recovery. This time was very though on software vendors as well. Although there were acquisitions, there was not a mass market consolidation as some might have predicted. If your vendor made it to see 2010, the chances are pretty good they will have a better year this year. Hopefully, all of us in the manufacturing and manufacturing software community will.

So that was a quick peek into some recent research on Product Lifecycle Management in 2010, I hope you found it interesting. I am looking forward to COFES (Congress for the Future of Engineering Software) where Cyon Research will report on the buying intentions of manufacturing and engineering companies. I had the opportunity to join Brad Holtz in conducting and presenting part of last year’s research on the impact of the economy on the engineering software market, and plan to do the same in Scottsdale this year.

Does the research reflect your experiences? Do you see it differently? Let us know what it looks like from your perspective. Please feel free to review more free research and white papers about PLM and other enterprise software for manufacturers from Tech-Clarity.